Ladies and gentlemen, thank you for standing by. Welcome to the RADCOM Ltd. Results Conference Call for the fourth quarter and full year 2022. All participants are present in listen-only mode. Following management's formal presentation, instructions will be given for the question-and-answer session. For operator assistance during the conference, please press star zero. As a reminder, this conference is being recorded and will be available for replay on the company's website at www.radcom.com later today. On the call are Eyal Harari, RADCOM's CEO, and Hadar Rahav, RADCOM's CFO. Please note that management has prepared a presentation for your reference that will be used during the call. If you have not downloaded it yet, you may do so through the link in the investor section of RADCOM's website at www.radcom.com/investor-relations. Before we begin, I would like to review the safe harbor provision.
Forward-looking statements in the conference call involve several risks and uncertainties, including but not limited to the company's statements about the 5G market and industry trends, the role the company is expected to play in the 5G transformation, sales, opportunities, sales cycles, visibility, leads, pipeline, and best backlog, the expected impact of currency rates, the company's market position, cash position, potential and expected growth, including scalable and profitable growth and momentum in 2023 and thereafter, levels of recurring revenues and gross profit from such activity, its expectations with respect to research and development and sales and marketing expenses, as well as grants from the Israel Innovation Authority, company's expectations with respect to its relationships with Rakuten and AT&T, its ability to handle future growth and meet demand, its expectation to continue enhancing its software solutions and demand for its solutions, deployment of its 5G solutions in cloud environments, and the potential benefits of its clients, its ability to capitalize on the emerging 5G opportunities and win more market share with new and existing customers, the potential of the company's vision and the use of artificial intelligence in its products and its revenue guidance.
The company does not undertake to update forward-looking statements. The full safe harbor provisions, including risks that could cause actual results to differ from these forward-looking statements, are outlined in the presentation and the company's SEC filings. In this conference call, management will refer to certain non-GAAP financial measures, which are provided to enhance the user's overall understanding of the company's financial performance. By excluding certain non-cash stock-based compensation expenses, non-GAAP results provide information helpful in assessing RADCOM's core operating performance and evaluating and comparing the results of operations consistently from period to period. The presentation of this additional information is not meant to be considered a substitute for the corresponding financial measures prepared in accordance with generally accepted accounting principles. Investors are encouraged to review the reconciliations of GAAP to non-GAAP financial measures included in the quarter's earnings release available on our website.
I would like to turn the call over to Eyal. Please go ahead.
Thanks, operator. Good morning, everyone. Thank you for joining us for our fourth quarter and full year 2022 earnings call. The fourth quarter was a solid finish to a record year as we expanded our install base with multiple top-tier mobile operators. During 2022, we delivered record revenue each quarter, representing a third successive year of growth. Fourth quarter revenue was $12.3 million, and full-year revenues were $46.1 million, a 14% year-over-year growth. We reached an inflection point for the company, delivering a profitable year on a non-GAAP basis while generating a positive cash flow of $7 million, ending the year with a record level of cash and a non-GAAP basis and net income of $2.9 million.
We also had an encouraging start in 2023 by announcing that we had secured another North American contract for our solutions. This exciting news continues the positive momentum since the beginning of 2022. This additional win brings us over $50 million in new contracts over the last 12 months period. The new multi-year contracts secured during 2022 on top of our current agreements provide good visibility and strong backlog for 2023 and beyond. As business grows, we carefully manage our expenses and believe we can maintain scalable, profitable growth. We delivered a record-breaking year despite the current economic headwind. We believe this positive momentum will continue into 2023 and expect an even more robust growth year in 2023. Based on our current visibility, we are providing full year 2023 revenue guide of $50 million-$53 million.
Turning to our customer activities. In 2022, we announced the renewal of our contract with AT&T and Rakuten. These are important milestones as they remain key strategic accounts with whom we have a strong relationship and partnership. We continue to innovate and provide software enhancements to ensure excellent customer experience and offer an advanced assurance solution that provide intelligence insight in a cloud-native solution. We also announced in 2022 that Rakuten Symphony selected our cloud assurance technology as its service assurance solution that will be globally available in their Symworld marketplace. The integration of RADCOM ACE into Rakuten Symphony streamlines network operations and helps teams understand what is happening in their network and where are the customer-affecting issues. It also provides built-in workflows and unified data analytics to enable more operators to deploy and roll out 5G rapidly.
Being part of this could open significant opportunities for RADCOM in the future. Turning to the new contracts. In 2022, we secured multiple new contracts, including DISH in the U.S. and a European mobile operator. Thanks to solid execution by our teams, we have made good progress with these accounts, which began to reflect in fourth quarter revenues. Most revenues will be recognized during 2023 and beyond. As these networks advance, we believe there could be further opportunities to expand with these operators. For example, DISH has previously stated that the enterprise could generate significant new revenue stream. This is where our cloud assurance technology can help. DISH can offer enterprise customers our assurance solution to monitor these private networks to ensure service quality and certify SLAs.
The operators can sell premium services and value-added packages, including service assurance that run over their 5G cloud across multiple market verticals. For the new North America contract we announced last month, we provide real-time insight into the network as the operator maintains its 4G network while expanding 5G coverage nationwide. With our recent win and positive customer feedback, we remain confident that our product offering align with the market needs, are best in class, and will increase our market share by winning opportunities as the 5G transformation continues. In 2022, our multi-year contracts provided recurring revenue that accounted for approximately 70% of our revenue. Our software-centric business offer a robust business model that delivers high gross margin and significant recurring revenue, while providing customers with great value and predictable long-term pricing. Our team executed exceptionally well in 2022. Even so, we extended our customer install base.
Our customer support headcount remained approximately the same through the year. This is a testament to the professionalism of our employees and the scalability of our innovative software. Our solutions can be quickly deployed in the operator's cloud network and rapidly roll out new customer features. The agility and operational efficiency drove our financial performance this year, while simultaneously delivering on the customer's expectations and requirement. As a software-focused company, we maintained a high gross margin this year, 73%. This helps our operational efficiency and improve our profitability KPIs. I am incredibly proud of the management team and our employees, and I thank everyone for their continued hard work and dedication. In 2023, we plan on gradually increasing our sales and marketing teams to take advantage of the strong demand for cloud assurance technology reflected in our pipeline.
Operators continue to roll out 5G and invest in their networks. We believe that 5G market remains strong, while still only being at the early stages. The complexity of these networks requires automated assurance solution to optimize performance and provide the cornerstone to building networks with extensive automation. With the uncertainty around the macroeconomy, some operators may take longer to roll out their 5G network than others. The market direction is clear. We believe our position as best-in-class assurance provider for 5G will continue to drive positive returns. With this transition to 5G in the cloud, operators want to become more efficient and reduce their CapEx and OpEx spending. This is also an opportunity for us, as I will elaborate on later. Our long-term vision is to have telecom operators become more autonomous. To achieve this goal, networks must be software-driven, more intelligent, and more automated.
This is what our solution enables through AI and automation, making the operator's network more intelligent and automated through AI-powered analytics. Our solution analyzes massive amounts of network data and provide insight that drive automated network operation. I mentioned that operators are under pressure to reduce CapEx and OpEx spending. This is another area where our innovative software and advanced AI can help. Our solution enables operator to save costs by automating their network operations and automatically finding places to optimize that prevent revenue leakage and customer churn. In addition, as we have a cloud-based solution, operators reduce cap expanding on assurance hardware. In other words, our solution empower operators to do more with less and improve services. These benefits can help operator navigate the current economic headwinds.
Although there is uncertainty around the macroeconomy, we are well positioned to win more business through our ability to help operators save costs and optimize. Our solution were born in the cloud and designed for telecom operators. This helps us remain focused as we enhance our solution, increase our 5G capabilities, and expand our AI-driven insights. AI has been in the news recently with ChatGPT going mainstream. This type of AI is called generative AI, which creates new content such as images, text, and videos. Generative AI has three models of working. One of those model is called GAN for short. This AI model generates synthetic data as an alternative to real network data. We use this AI technology to train and improve our solutions for advanced 5G use cases, develop our AI models, and offer our customers new use cases.
Later this month, we will showcase our latest product innovation, AI capabilities, and exciting new use cases at the Mobile World Congress in Barcelona, Spain, the leading telephone industry event. We will hold many meetings with customers, top tier operators and partners. The event is expected to draw around 80,000 visitors as it's ramped up after a couple of years of being primarily virtual event due to COVID limitations. Turning to the pipeline. We continue to see strong demand for our advanced cloud assurance technology reflected in our sales pipeline as we manage multiple customer engagement at different stages of the sales cycle, with a healthy mix of new logos and current installed base, with most opportunities focused on 5G.
We see good momentum for the 5G market and believe it will stimulate growth as it ramps up, creating more sales engagement that can lead to additional multi-year contracts and increased market share. Our solid financial results and new contracts demonstrate our strategy's effectiveness and a unique market position in supporting telecom operators as they roll out 5G. Our recent wins provide a growing stream of recurring revenue and improve our already strong backlog, providing us with long-term visibility into 2023 and beyond. We believe this solid footing will drive consistent financial results in the future and continued improvement to the bottom line. Despite the economic headwinds, we also believe that the 5G market will drive additional demand for our solutions, increase our business, and lead to further wins in the future.
As a result, all the foundations are in place for a strong 2023 and a 4th successive year of revenue growth. Based on our current visibility, our 2023 revenue guidance is $50 million-$53 million. With that, I would like to turn the call over to Hadar Rahav, our CFO, who will discuss the financial results in detail.
Thank you, Eyal. Good morning, everyone. Please turn to slide 8 for our financial highlights. While the slides contain GAAP and non-GAAP results, I will refer mainly to non-GAAP numbers excluding share-based compensation. We ended the fourth quarter of 2022 with $12.3 million in revenue and a new record quarter, an increase from $11.2 million in the fourth quarter of 2021. Our gross margin in the fourth quarter of 2022 on a non-GAAP basis was 73%. Please note that our gross margin can fluctuate depending on the revenue mix. Our gross R&D expenses for the fourth quarter of 2022 on a non-GAAP basis were $4.7 million, a decrease of $60,000 compared to the fourth quarter of 2021.
We received a grant of $160,000 from the Israel Innovation Authority during the quarter, compared to a grant of $194,000 in the fourth quarter of last year. Our net R&D expenses for the fourth quarter of 2022 on a non-GAAP basis were $4.5 million, similar to the fourth quarter of 2021. Sales and marketing expenses for the fourth quarter of 2022 were $2.9 million on a non-GAAP basis, an increase of $347,000 compared to the fourth quarter of 2021.
G&A expenses for the fourth quarter of 2022 on a non-GAAP basis were $942,000, an increase of $105,000 compared to the fourth quarter of 2021. Operating income on a non-GAAP basis for the fourth quarter of 2022 was $608,000 compared to an operating loss of $158,000 for the fourth quarter of 2021. Net income for the fourth quarter of 2022 on a non-GAAP basis was $1,320,000, or a net income of $0.09 per diluted share, compared to a net loss of $237,000 or a net loss of $0.02 per diluted share for the fourth quarter of 2021.
On a GAAP basis, as you can see on Slide seven, our net loss for the fourth quarter of 2022 was $0.03 million or a net loss of $0 per diluted share compared to a net loss of $1.4 million or a net loss of $0.10 per diluted share for the fourth quarter of 2021. At the end of the fourth quarter of 2022, our head count was 284. Let's turn to the full year results. We ended 2022 with revenue of $46.1 million, an increase of 14% from $40.3 million in 2021.
On a non-GAAP basis, our gross margin was 73% in 2022, compared to 72% in 2021. Our gross R&D expenses for 2022 on a non-GAAP basis were $19.0 million, which was approximately the same in 2021. In 2023, we plan on investing in R&D at approximately the same level as in 2022. We received a cumulative grant from the Israel Innovation Authority for $762,000 during the year. In 2023, we expect grants from the Israel Innovation Authority to be lower by 50% compared to 2022.
Sales and marketing expenses for 2022 were $10.9 million on a non-GAAP basis, compared to $9.5 million in 2021. In 2023, we expect a gradual increase in sales and marketing to support an increasing pipeline of opportunities. G&A expenses for 2022 on a non-GAAP basis were $3.6 million, an increase of $301,000 compared to the entire year of 2021. Operating income on a non-GAAP basis for 2022 was $1.1 million compared to an operating loss of $2.1 million for 2021.
Net income for 2022 on a non-GAAP basis was $2.9 million or a net income of $0.19 per diluted share compared to a net loss of $1.9 million or a net loss of $0.13 per diluted share for 2021. On a GAAP basis, as you can see on slide seven, our net loss for 2022 was $2.3 million or a net loss of $0.16 per diluted share, compared to a net loss of $5.3 million or a net loss of $0.37 per diluted share for 2021. The increased share-based compensation expenses negatively impacted GAAP net loss in 2022 compared to 2021.
In 2023, we believe that the dollar shekel ratio will stabilize at the current levels and will not require hedging. Turning to the balance sheet. As you can see on slide 11, our cash equivalents and short-term bank deposits as of December 31, 2022, were $77.7 million. That ends our prepared remarks. I return the call back to the operator for your questions.
Thank you. Ladies and gentlemen, at this time, we will begin the question-and-answer session. If you have a question, please press star one. If you wish to cancel your request, please press star two. If you are using speaker equipment, kindly lift the handset before pressing the numbers. The questions will be polled in the order they are received. Please stand by while we poll for your questions. The first question is from Alex Henderson of Needham & Company. Please go ahead.
Great. Thank you so much. Congratulations on the great and consistent execution. You guys really are delivering the right mechanics in your business, and it's good to see. I was hoping we could talk a little bit about the commentary around sales and marketing. What do you think your OpEx investment will look like over the course of 2023? Assuming your gross margins will stay pretty much where they are, but I also would assume a little bit more aggressively on the sales. Just some guidance there.
Thank you, Alex. Yes, we are finishing a great year with the improvements on all of our KPIs. As I pointed out, we are looking to keep our operation expense in similar levels in general, as we are seeing our ability to be efficient and continue to deliver on with our current team, even though we are growing with our customer base. We are keeping our R&D expense on technical staff in similar expense compared to 2022, and we are looking to gradually increase our sales and marketing.
We see there is additional opportunities and we want to have better reach to more accounts as 5G progresses.
Just so I can understand. I mean, I would think that you have at least some wage inflation to deal with. You know, is it the shekel that's offsetting, you know, the weakness in the shekel over the last year offsetting the wage inflation? Is that how you're delivering stable OpEx that seems like pretty good?
Yes, we do have some weakening of the shekel compared to the dollar, which allow us to optimize a bit our costs as our R&D main cost is in Israel, in shekels. We did also some optimization and cost saving activities to adjust our operational expense. This is why we are able to maintain similar levels despite also the inflation and some salary reductions we need to do.
One of the other variables it's a little bit challenging for us to analyze externally is the change in cash generation in the company over the course of the year has raised your cash balances and the interest rate on your cash balances are going up. Can you give us some sense of, you know, where we ought to be in terms of the interest income over the course of 2023? It was up quite sharply quarter to quarter, I don't know whether that's a function of something unusual in the numbers, you know, a translation, just the rise of interest rates on your balances.
Adal, can you take this?
Yes, sure. We ended the last two years with a positive cash flow. We believe that, with the transition to profitability together with a strong collection from our larger customers and the expected interest on the bank deposits, of course, based on the current rate, we will continue to generate cash during 2023.
Well, yeah, I would assume so. I guess my question is, in the interest income line, should we be using 500K a quarter to roughly $2 million for the year similar to what you earned in 2022? Is there something in there that in 2022 that overstated that it should be down a little bit or interest income to go up? Can you give us some guidance on the interest line for 2023?
I assume between $2 million-$3 million in interest, on the bank deposits during 2022.
Okay. Are there any offsets to that or is that just the, you know, that we should be using?
This is the significant portion of our financial income.
The other two lines to use a little guidance on is the NRE line. As you're now getting a little larger, is that NRE line from the government subsidies going to start coming down? We're assuming it's gonna come down $150K for the year. Is that right or is it going up? Is there any thoughts on that?
Sorry, can you repeat please?
Yeah. you know, the subsidies you get from the government, the NRE line.
Okay.
Any sense of whether that's going to go up, down, sideways, for 2023?
currently the innovation sort is concentrated in small companies and startups, we believe and expect that the NRE grants during 2023 will be lower by 50% compared to 2022, it will be recognized during the first half of the year.
Tax line, any guidance on tax?
Sorry.
The tax line, any guidance on the tax line?
Regarding the tax, we assume a similar cost as there was in 2022 because we believe that our carry forward losses will offset the expected profitability during 2023.
Great. Thanks. Can you talk just a little bit about the pipeline? You know, what the ripeness of what you're looking at is. Is there a lot of transactions that are being slowed down as a result of the conditions in the marketplace? To what extent you think that you're gonna have some new flow in the first half of the year, or is it going to be mostly in the back half of the year? Just some sense of timing of what you're chasing. Thanks.
Our pipeline is solid, and we have a good mix of opportunities between our existing customers and new customers. We are monitoring like everyone the news, and we see telecom operators continue to invest in 5G, but they are also looking on how they need to adapt to the new macro economy. It's very hard to predict in telecom and in RADCOM in specific when exactly a deal will happen. I think most importantly is that we are starting 2023 with very good visibility into the year, based on our good performance in 2022, which gives us the confidence that this will be another growth year. We have in our pipeline a mix of opportunities, different stages.
Definitely some could still happen in the first half of the year, as long as there is no unforeseen delay due to the macro economy, but it's very hard to predict.
Great. Thank you so much.
Thank you, Alex.
If there are any additional questions, please press star one. If you wish to cancel your request, please press star two. Please stand by while we poll for more questions. The next question is from Faith Brunner of William Blair. Please go ahead.
Hey, guys. It's Faith on for Arjun. Congrats on the quarter. Just wanted to talk a little bit now that you've reached that inflection point, what are the levers that you guys have at your disposal from both a top-line perspective as well as margins, that I know you touched on previously, to kind of keep this level trending as you kind of go back towards historic net income numbers?
Thank you, Faith, and good morning. I think to start with, 2022 was a third consecutive year of growth. As you see our guidance, we are looking to continue growing also in 2023 in double-digit levels. As a software company with a gross margin of 73% in 2022, we are looking to have similar levels in 2023. A lot of the top line goes to the bottom line. I mentioned in my prepared remark. As was asked in the previous questions, we are able to maintain our operational expense in a controlled manner. We didn't see a need to increase our operational teams despite this growth and additional customers that we work with.
This is why we see that a significant part of the top line is translated to the bottom line. We see this trend in profitability KPI improving along the last three years along with the growth. As we are expecting to also grow this year, working and executing with our existing and new customers, we are expecting this to be improving also the profitability and continue to generate cash flow during 2023.
Okay. Great. Thanks. Then I just wanted to talk about RADCOM ACE for a second. We've been hearing a lot about it in your recent deals. Can you just talk about, you know, how the solution brings customers to the table and how it's contributing to the overall pipeline?
RADCOM ACE is a solution that was built in the cloud for telecom operators as they transform into 5G. Unlike many of our competitors who are based on legacy platforms that were built for the 4G networks and the appliance base, we build ground up all our technology around virtualization and cloud-native architectures. This allow us now to be focused not only on the infrastructure, but we are continuing to add more innovation into the value. If maybe some of our other market players are busy today to integrate or build a cloud-native solution, this is something we already have for the last two years.
We got endorsement from the recent wins, companies like DISH, that they are very advanced in the cloud, maybe, the only operator that is fully cloud-native utilizing AWS. This allow us to direct our R&D investment into creating additional edge. As pointed out before, AI technology is amazing, and we are trying to harness these great tools to allow additional value to our customers as they are required to optimize and save costs. By leveraging this technology, they are able to add a lot of machine-based applications for automation, and it's aligned with our long-term strategy to help operators become more autonomous.
We are seeing great response from our customers and prospects about the RADCOM ACE, and we believe this is probably the best product out there for 5G assurance in the cloud.
All right. Awesome. Thanks for calling. Again, congrats on the year.
Thank you, Faith.
This concludes the RADCOM Ltd. fourth quarter and full year 2022 results conference call. Thank you for your participation. You may go ahead and disconnect.